For the last several seasons, the production of wheat in Russia is rising as well as its export. According to the USDA forecast, in 2017/18 MY the exports of Russian wheat will reach 38.5 mln tonnes, which is higher by almost 10.7 mln tonnes than last season. However, following the export growth the market participants started facing significant logistical challenges.
The main trends of 2017/18 MY and the prospects of 2018/19 MY on Russian grain export market were the main topics of our conversation with the owner of the company IE Koltashov O.A. (individual entrepreneur), Oleg Koltashov.
- Oleg Anatolyevich, would You kindly speak about your company?
Our company is one of the leading entrepreneurship in Kurgan oblast in terms of crop storage, conditioning, and wholesale trade of grains and oilseeds. As for today, our company has two elevators and one grain-collecting station with the total storage volume at 90 thsd tonnes, and its own rolling stock with 45 grain-cars 19-6870.
- How do You estimate 2017/18 MY in terms of grains and oilseeds? What features would You highlight?
This season the Russian grain market faces drastic changes and there are many factors, which interfere with the work of market participants. First, it is the taxes and rolling stocks difficulties. Thus, according to some reports, during the season approximately 30% of the grain-cars have dropped-out of the turnover. Secondly, there was the shift in emphasis of the government support instruments, which means the mitigation of the market interventions, and the establishment of the railroad subsidy mechanisms, which has become the main instrument of the price formation.
And of course, the high global production of the grains is one of the common factors, which influences the price formation during the current season.
- What factors do mainly impact the price formation on the grain market?
In order to analyze the price conjuncture of the future seasons I rely on 3 key indicators. First of all, it is a stock-to-use rate – the ratio of the global stocks and the consumption volume during the current MY. This rate defines the vector of the development of the global grain market with Russian market to be the essential one. The second but not the least factor is the currency rate that forms the prices on both the domestic and the export markets. The third factor is the governmental support and regulation of the grain market. Thus the last factor is least predictable.
- What difficulties did Your company face in the current season?
The deficit of rolling stocks was the main obstacle in the season for traders, agrarians and agro holdings. During the season, the elevators were mostly overcrowded, also there was a lack of the storage capacities in order to unload the record crop, and the number of carriages was insufficient. Herewith, if the logistic issues in Southern and Central Federal Districts for now are not critical, than in the Ural Federal District, and also Novosibirsk and Omsk they are still critical. Naturally, this situation adversely affects the price conjuncture, and the margin of farmers continue to be low.
- In Russia, the Charter of agricultural products rotation came into force on July 1st of 2017. How did it influence the market?
As the grain market participant, I welcome the Charter. However, for a long time the conscientious traders, who have large grain complexes and are only traders but not the producers, have been in a situation of a legal vacuum. Particularly no one wanted to sign the contracts with them fearing tax consequences. As for today, all the issues returned to normal in terms of certain requirements to the intermediaries. Thus, we can observe that unfair participants are leaving the market. The reason for this is that in order to be an intermediary between the agrarian and the consumer you must have the capacities, work team and the clear VAT declarations.
Of course, the regulation of all the mechanisms of the Charter took an extended period of time, but in the future it should clear the market and the operations should become transparent including statistics.
- Since July 1st of 2018, the new standard for wheat named GOST 9353-2016 “Wheat. Technical specifications” is to come into force. Can it lead to some changes in 2018/19 MY?
Firstly, the renewed GOST is designed for the countries of the Customs Union and for those that are geographically close to them.
In 2018/19 MY, the GOST will be common and will facilitate the work of the market. In particular, the wheat quality requirements were unified. In 2018/19 MY, all of the oblasts of the Russian Federation are going to be classified as export oriented. Herewith, the only possible obstacle for the market participants in terms of renewed standard may be the issue of the equipment controlling the protein content as many companies can not afford it. But, the main factor is that wheat will be identified in terms of the export performance.
- How would You characterize the tariff policy of the railway and auto transportation in 2017/18 MY in comparison with last season? What influence does the formation of the railway tariff rates provide?
As all the railway in Russia is monopolized, the antimonopoly committee controls the tariff rate. In 2017/18 MY, the tariff rate was increasing but there are factors that mixes the growth. In particular, there are programs that control the existing difference of the logistic costs for those farmers who are located in the central regions and those who are located in the advantageous export territories.
- How do You estimate the prospects of the Russian grain market development in terms of global grain production growth and high competition on the both domestic and global markets?
The Russian wheat has a strong potential on the East and South markets. The development of the infrastructure in the Far East and on the border stations with China remain the first and the most objective. Herewith, taking into account quality characteristic of the Russian wheat, we have all the prospects to compete on the markets of South-East Asia, countries of the Mediterranean basin and Africa.
- The lack of storage capacities is one of the major problems of the record harvest. How would You estimate it in terms of 2018/19 MY?
If we speak about the European countries, the storage facilities there are always 40% higher than the maximum volume of agriproducts turnover. But in Russia it is totally different, and we must strive to increase the export infrastructure. For now, the construction of a number of grain terminals is in consideration that if realized will enable the exports of the grain surplus.
- Thank You for the informative talk, and at the end I would like to ask You about Your company plans and prospects for 2018/19 MY.
I would prefer not to make some forecast for the new season, as much will depend on the weather conditions.
Speaking about the company’ plans for 2018/19 MY I would say that we negotiate a contract with the railways, forming the one chain of the carriages that will transport the wheat of our company only. That will reduce the transportation costs almost twice. In the new season, we plan to increase our presence on the markets of the Black Sea and Azov Sea regions.
Moreover, our company is realizing the investment project for construction of a flour mill.
Interviewed by Polina Kalaida, APK-Inform Agency
